Office Insights: Positive Momentum Continues

The second quarter of 2018 saw some significant milestones and moves in the Minneapolis – St. Paul commercial real estate market. Capital markets first half volume of 2018 CBD sales surpassed annual volume for nine of the last 10 years. Q2 saw a large-user shake-up in the northwest Twin Cities metro with Cantel Medical taking the former campus of Sleep Number. And downtown Minneapolis’ East Town district had more than 730,000 square feet of new owner-occupied office space ready to break ground for new build-to-suit projects.

Investing and DivestingThe second quarter saw a 12 percent increase in CBD sales volume over Q1 with $407 million traded. LaSalle Investments took over ownership from Hines of T3 in the North Loop for $87 million making Hines the largest seller of CBD assets over the last 18 months.

The northwest Twin Cities metro is not typically a prime target for large leases; however, its adjacency to the popular west metro and nearly 20 percent discount to the market average asking rate makes economic sense. In this region, Cantel Medical will fill Sleep Number’s former 159,000 SF office campus. This single-tenant space was only vacant since the end of 2017 demonstrating demand for affordable large suburban blocks. In addition, The Mosaic Company announced it will relocate its headquarters to Florida which will open up nearly 75,000 SF of new sublease space.

Building to SuitLarge employers like Prime Therapeutics, Thrivent Financial and the City of Minneapolis are all constructing their own headquarters. Thrivent Financial broke ground on their new site in July. This coincided with the City of Minneapolis’ new consolidated office building just one block away where demolition of a parking ramp began in May. Combined, these projects will bring about 730,000 square feet of new owner-occupied office space to East Town in 2020. Other owner-occupied projects underway around the market include Prime Therapeutics in Eagan, and Thor Construction’s headquarters in Minneapolis.

Renovate, Renovate, RenovateTenant activity in renovated buildings was hot in the second quarter of 2018. Fifth Street Towers, The Baker Block, West End Center, 801 Marquette all saw sizeable absorption or new leases signed. More moderate growth in asking rents is expected due to the remaining unrenovated space more heavily influencing weighted average asking rates.